SOUTH AFRICQECONOMIC NEWS WEEKLY NEWSLETTER OCTOBER 26,

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SUBJECT: SOUTH AFRICQECONOMIC NEWS WEEKLY NEWSLETTER OCTOBER 26,
2007 ISSUE


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1. (U) Summary. This is Volume 7, issue 43 of U.S. Embassy
Pretoria's South Africa Economic News Weekly Newsletter.

Topics of this week's newsletter are:
- Inflation At Four-Year High
- Debt Service Cost To Income More Than 10%
- Earthlife Africa Challenges Nuclear Thrust
- Mbeki's Re-Election Bid Worries Investors
- Broad-Band May Not Stay In State Hands
- Legislation Delaying SA Oil Projects
- Nedbank On Greening Crusade

End Summary.


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Inflation At Four-Year High
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2. (U) According to Statistics South Africa (StatsSA),
CPIX-inflation (CPI less mortgage interest) increased to a four-year
high of 6.7% in September 2007, breaching the South African Reserve
Bank's (SARB's) 3-6% target band for the sixth month in a row.
CPIX-inflation accelerated from 6.3% in August and outpaced
analyst's September forecasts of 6.4%. Analysts said the data
showed inflation pressures were entrenched. "It reinforces that we
have an inflation problem and that 7.0% is likely before the end of
the year," said Jeff Gable, ABSA Capital's Head of Research. "It's
going to continue to leave the focus on the SARB, whether or not
it's time to call an end to interest rates hikes or not.", he said.
The SARB expects inflation to peak in February 2008 and then
gradually come back to the bank's 3-6% target band. Bonds fell
after the data was released, with yields on the 2015 issue spiking
as much as 15-basis points, before retreating. The SARB has raised
its key repo rate, at which it lends to commercial banks,
cumulatively by 350-basis points since June last year. The
unexpectedly high inflation figure for September increases the
pressure for the SARB to raise its repo rate once again when its
Monetary Policy Committee meets in early December, just a week ahead
of the ANC leadership election. (Business Day, October 24, 2007)

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Debt Service Cost To Income More Than 10%
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3. (U) According to the Bureau for Economic Research (BER),rising
interest rates and inflation have pushed debt service costs as a
share of consumer's disposable income above 10% for the first time
in eight years. The service cost ratio measures the toll taken on
households by interest payments on mortgage and credit card debt.
Analysts said the ratio is set to creep higher in the next few
months as the effect of the past two interest rate hikes filters
through, putting more pressure on household finances. The SARB has
highlighted that household debt as a share of disposable income
reached a record peak of 76.5% in the second quarter of 2007.
(Business Day, October 23, 2007)

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Earthlife Africa Challenges Nuclear Thrust
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4. (U) Anti-nuclear environmental group Earthlife Africa called for
the South African draft nuclear policy to be withdrawn in its formal
comment submission at the end of the public comment period.
According to Earthlife Africa, "The draft nuclear policy is a hasty
and ill-informed document replete with sweeping unsupported
Qand ill-informed document replete with sweeping unsupported
statements as to the appropriateness of nuclear power." The South
African Department of Minerals and Energy (DME) will soon begin to
study the 400 pages of comments from various organizations on the
draft policy. DME Chief Director for Nuclear Tseliso Maqubela said,
"These comments may result in the draft policy being revised.
Inputs could not change policy, but could change the emphasis."
Earthlife Africa has objected that the policy did not follow DME's
own procedures as determined by the white paper on energy policy of
1998, wherein a decision on new nuclear capacity would depend on the
environmental and economic merits of alternative energy sources,
relative to nuclear and the political and public acceptance of
nuclear power. Maqubela said the DME was finalizing an electricity
master plan, as well as a new national integrated resource plan.

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Eskom is moving forward on nuclear expansion plans, putting in
motion environmental impact assessments (EIA) at five coastal sites.
If all approvals are secured, Eskom aims to start construction in
2010, targeting first unit operating in 2016 or 2017. (Business
Report, October 24, 2007)

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Mbeki's Re-Election Bid Worries Investors
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5. (U) According US rating agency Moody's, President Thabo Mbeki's
determination to make himself available for a third term as African
National Congress (ANC) leader worries international investors.
Moody's Vice-President Kristin Lindow said investors interpret it as
a reluctance to relinquish political power and when there are signs
that any emerging market head of state wants to retain his powers,
there tend to be question marks about what that could lead to.
Lindow said international investors would prefer to see a new ANC
head elected at the ruling party's national conference in Polokwane
in December. According to Moody's, Mbeki's insistence to make
himself available for a third ANC term is seen as an attempt to halt
ANC Deputy President Jacob Zuma's march to power. Lindow said
investors would be worried if Zuma was elected leader of the country
because of perceptions he would pursue more populist economic
policies, but those concerns could be unjustified. According to the
local press, Zuma told clients of a top international bank in
Johannesburg recently that the ANC would stay committed to a mixed
economy, with the private sector driving growth, but with an
important role for the state. South Africa's biggest business
grouping, Business Unity SA (Busa),said it was worried that the
country's credit rating, which influences foreign investment
inflows, could suffer from a change in leadership. Moody's revised
its outlook upward on South Africa's Baa1 mid-investment grade
rating for foreign currency debt from "stable" to "positive" in
June. Fitch ratings agency also upgraded their South African rating
outlook to positive earlier this year. However, Fitch warned that
uncertainty over the continuity of the South Africa's successful
economic policies could influence a future rating. (Business Day,
October 24, 2007)

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Broad-Band May Not Stay In State Hands
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6. (U) South Africa's planned state-owned broadband infrastructure
company would not necessarily remain in state hands after it
achieved its strategic objectives, Public Enterprises Minister Alec
Erwin said. Erwin said that Broadband Infraco was established to
provide accessible and affordable broadband infrastructure. The
minister justified the state's investment by the fact that there
were a few incumbents in the telecommunications industry with
"significant market power", referring to the state telecom monopoly
firm Telkom. Erwin was correct in noting that the lack of broadband
capacity and the related high cost is an obstacle to economic
growth. (Business Day, October 18, 2007)

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Legislation Delaying SA Oil Projects
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Q --------------

7 (U) According to the Petroleum Agency, new laws, which took effect
in May, have delayed fresh investment in deep-water oil exploration.
According to the new law, companies holding mineral rights,
including oil and gas, have to convert existing rights in order to
conform to the new code. The conversion process has been fraught
with problems, delaying new investment in exploration. The thrust
of the new Minerals and Petroleum Resources Development Act is to
separate the ownership of the mineral rights from ownership of the
surface and to drive the active use of rights. Among those affected
by the conversion process are BHP, South African state owned oil
firm PetroSA, U.S.-based Forest Exploration, Canadian Natural
Resources and U.S.-based Pioneer Natural Resources, the five big
players exploring for oil and gas in South Africa. According to the
Petroleum Agency, the conversion process has impeded expensive
offshore exploration but increased access to onshore rights has
stimulated the market, with about ten companies looking for gas and
coal bed methane. (Business Day, October 18, 2007)

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Nedbank On Greening Crusade
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8 (U) Nedbank, one of South Africa's four largest banks, is on a
greening crusade to promote environmental sustainability. Nedbank
Chief Financial Officer (CFO) Mike Brown said their corporate colors
are green to reflect their hold on the "green space" in the
financial services sector. Nedbank not only offers products which
are environment-oriented but also look into the operating
environment at issues such as energy utilization and their carbon
footprint. Nedbank offers a credit card where users could make a
contribution to an environmental cause and sponsors the Green Mining
Award to encourage mines to engage into environmental sustainability
programs. Nedbank is the only bank in South Africa which has signed
the Equator Principle, which involves implementing sustainable
projects. Brown noted that Nedbank would in the near future focus
on climate change and adaptation activities. (Business Report,
October 12, 2007)

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